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Testing the Heckscher-Ohlin-Vanek Paradigm in a World with Cheap Foreign Labour

Testing the Heckscher-Ohlin-Vanek Paradigm in a World with Cheap Foreign Labour

Date:

Tuesday, June 24, 2014

Type:

Public information and advocacy materials

Abstract

Shared as background to the related ARTNeT Seminar, this paper by Professor Eric Fisher from California Polytechnic State University co-authored with Kathryn Marshall tests the Heckscher-Ohlin-Vanek Paradigm in a World with Cheap Foreign Labour. Measuring factors services, not quantities, this paper examines the technologies and endowments of thirty-nine countries and five factors in 2005. The authors conduct three tests of the Heckscher-Ohlin-Vanek paradigm: (1) the conventional one; (2) a benchmark where every country has America’s technology; and (3) a test that converts foreign endowments into international efficiency units. The first predicts the direction of trade better than any former study. The second shows no statistically significant evidence of missing trade. The third performs just as well, and it accounts for international differences in both factor prices and unit input requirements.